The Magazine

Traders Are Not Traitors

From the March 29, 2004 issue: Outsourcing is good for America--and the world.

Mar 29, 2004, Vol. 9, No. 28 • By CESAR CONDA and STUART ANDERSON
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WHO IS the unilateralist candidate for president this year, the man who's willing to push our allies away and who questions the patriotism of those who disagree with him? That would be John Kerry, at least on the issue of trade. Kerry may like to portray himself as a multilateralist, whom foreign leaders are secretly rooting for. But when it comes to trade policy and the outsourcing debate, he claims that it's America versus the world.

The recent flap over outsourcing--the buzzword for American companies' hiring professional workers abroad--is almost purely political. Reliable data show that America is not "losing" jobs to foreign workers. "Despite the political outcry over the outsourcing of white-collar jobs to such places as India and Ghana, the latest U.S. government data suggest that foreigners outsource far more office work to the U.S. than American companies send abroad," reports the Wall Street Journal. Indeed, according to the Commerce Department, the value of "legal work, computer programming, telecommunications, banking, engineering, management consulting and other private services" performed by U.S. workers for foreign clients rose about 7 percent in 2003. In other words, "outsourcing" is a net creator of jobs for Americans, not to mention its benefits for the overall health of the economy.

Despite this, Republicans have been on the defensive ever since the February 9 press briefing of Gregory Mankiw, chairman of the President's Council of Economic Advisers. "Outsourcing," Mankiw explained, "is just a new way of doing international trade. We're very used to goods being produced abroad and being shipped here on ships or planes. What we're not used to is services being produced abroad and being sent here over the Internet or telephone wires. But does it matter from an economic standpoint whether values of items produced abroad come on planes and ships or over fiberoptic cables? Well, no; the economics is basically the same. More things are tradable than were tradable in the past, and that's a good thing."

All true. The outrage from Democrats over the remark unfortunately was not matched by a vigorous White House defense. Indeed, a number of Republicans in Congress piled on against Mankiw.

Even by Washington standards, political rhetoric on the outsourcing issue has been abysmal. For example, on the night of the Wisconsin primary, John Kerry tarred all companies that do business outside America's borders as traitors: "We will repeal the tax loopholes and benefits that reward Benedict Arnold CEOs and companies for shipping American jobs overseas." He was a bit more scrupulous the next day, in response to a union member asking if he would pledge to keep jobs in America. Kerry replied with surprising candor: "I don't want to lie to you. If a candidate stands here and said 'yes' to you in answer to that, they're not telling you the truth. You know, we don't have the right constitutionally to stop a company from going overseas if it wants to."

Kerry has mostly received a free ride from the media over his demagoguing on outsourcing and flip-flops on past support for free-trade agreements like NAFTA. And no one in the media seems to have recognized the glaring discrepancy between his trade policy--which would alienate almost every foreign government--and his frequent complaints that the Bush administration has "pushed away our allies."

Kerry early on saw political possibilities in exploiting the outsourcing issue. In November 2003, he introduced a bill to regulate U.S. companies' use of call centers abroad by requiring "each employee in the call center to disclose [his or her] physical location." The press release announcing the bill stated that requiring operators to disclose they are foreigners would "go a long way to preserve U.S. jobs."

There is an unusual premise to Kerry's legislation: It assumes that if Americans discovered they were speaking to foreigners they would either hang up the telephone or protest in some other manner. It is not clear how the bill would save jobs, unless you assume Americans have little tolerance for even the most modest level of international engagement. Of course, the entire preoccupation with call-center jobs is a bit strange, since Kerry and other members of Congress had previously passed "Do Not Call" legislation that, according to telemarketing industry estimates, could eliminate as many as two million U.S. call-center jobs.